Feeders to face revenue heat

Feeders providing input materials to manufacturing units and not maintaining proper records will come under closer scrutiny of the revenue department.

The move, part of an anti-tax evasion measure, will be aimed at top 10 registered feeders in each excise commissionerate in 2007-08. Those with weak internal controls will be subjected to extensive audit, official sources said. Tax credit is allowed to manufacturing units when inputs are received through the first and second stage feeder recognising the invoices of the feeder as a Cenvatable document.

Tax evasion was detected in high impact audits conducted in 2006-07 during audit of central excise assessees availing a high proportion of credit on the basis of feeders' invoices.

Feeders are only a conduit for flow of Cenvat credit and do not suffer any excise duty on their business activity. However, their meticulousness in record-keeping and invoice preparation directly affects the compliance level of downstream assessees.

The evaluation of internal controls of feeders would help identify feeders whose transactions need in-depth scrutiny or the Cenvat availment of whose buyers may need closer scrutiny. The proposed audit would cover details of goods received, transport particulars and payment details. A report on the outcome of such audits is expected by March 31, 2008, sources said.

If any feeder is found guilty of issuing fake invoice, the registration will be cancelled for certain period, during which the feeder cannot issue any central excise invoice.

The excise duty collections grew by only 5.8 per cent in 2006-07 and by 5.5 per cent in April-July of 2007-08.